Yesterday, it was announced that Celsius will be returning at least $2.03 billion in crypto to creditors. The news was shared by the Celsius NewCo Community, an unofficial profile that provides updates on the Celsius bankruptcy case.
The Court Approval
However, before the repayments can proceed, the company needs approval from the court. Celsius filed for Chapter 11 status under the US Civil Code last year, which means any action must be authorized by the bankruptcy court overseeing the case. The filing was submitted yesterday and is expected to be approved.
Chapter 11 allows the company to reopen and proposes creating a NewCo that will receive $450 million from the former bankrupt company. Creditors will not be fully repaid, as some of the funds will go to NewCo. It’s important to note that this $450 million is a loan and not money deposited by Celsius customers. Fahrenheit LLC, a consortium of companies interested in managing mining and staking, backs NewCo.
The Role of Celsius
Celsius was primarily known for its crypto loans. Customers could deposit cryptocurrencies on the platform in exchange for interest. However, instead of relying solely on interest payments from borrowers, Celsius used customer funds for speculative and risky financial transactions that ended up causing losses when the crypto market collapsed.
When they could no longer allow customer withdrawals due to lack of funds, Celsius declared bankruptcy and shut down operations. The next steps depend on the judge’s decision, but most creditors support the proposed plan. Once approved, details about how funds will be received and returned will be announced.
Crypto Failures in 2022
Celsius was one of several crypto failures in 2022 but not the most significant one. FTX experienced a more significant failure after Earth/Moon’s implosion in May and FTX’s closure in November. Celsius was the third most important crypto failure of 2022, considering its popularity as a platform for investing money. Around the same time, BlockFi, another similar platform, also failed.
FTX, on the other hand, was an exchange that failed due to customer funds being misused for corporate or personal expenses. It remains unclear what services NewCo will offer former Celsius customers.
Hot Take: The Impact of Celsius’ Bankruptcy
Celsius’ bankruptcy and the subsequent return of at least $2.03 billion in crypto to creditors highlight the risks associated with crypto platforms. The misuse of customer funds for speculative transactions is a reminder that investors should exercise caution and thoroughly research any platform before depositing their assets.
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